Case Problem: Textile Mill Scheduling

The budget analysis shows that the labor hours of the firm are higher than the budgeted amount. As such, the firm needs to evaluate the cost benefit analysis of making or buying their products. To make this decision, various factors need to be considered. Before making the decision, Peyton needs to evaluate the marginal costs and revenue of making versus buying the products. The firm should take the option which provides the highest marginal profit which is the

Throughout this task I will do my best to explain how firms determined to maximize profit do just that. Specifically I will delineate how such firms choose the optimum level of production or output for the goods they produce and how they behave with respect to various elevations of marginal revenue. In my attempt it will be appropriate for me to clarify the definitions of various economic terms in order to assure a proper understanding of my thoughts on this topic, I will provide these definitions throughout.

We decided to decrease the price of mountain bike production from $134 per bike to $108. The difference of $26 for 11,000 units results in a saving of almost $300,000. In the meanwhile, we also decided to dump our finish goods inventory, incurring a loss of $175,000. We decided to increase our capacity from 20,000 to 27,500 and efficiency from 1,000,000 to 2,000,000. We want to avoid increasing capacity significantly in order to avoid low efficiency. At the same time we want to keep our wastage at a minimum. We reduced our retail margin for the bike and sports store to 20% while reducing the discount stores to 27%. These new retail margins

Explain how a profit maximizing firm determines its optimal level of output, using marginal revenue and marginal cost as criteria:

In our analysis we determined the equations for total cost and marginal cost using the average cost obtained from the regression model provided, and the fixed costs estimates in the collected data calculated by a previous resource endorsed by the company. Once we have determined the marginal cost equation, we calculated the output for perfect competition profit maximizing criteria P

In the case of Mendel Paper Company which produces four basic paper products lines at one of its plants: computer paper, napkins, place mats, and poster board. Although the plant superintendent, Marlene Herbert is pleases with increased sales he is also concerned about the costs. The superintendent is concerned with the high fixed cost of production, the increases in fixed overhead and even variable overhead. He feels that the production of place mat should be discontinued. His reason for the discontinuation is that the special printing is driving up the variable overhead to the point where the company may not find it profitable to continue with the line. After reviewing the future predictions of the

|M |2/07 | |Read Ch. 3, Analysis of Cost, Volume, and Pricing to Increase Profitability, pp. 106-125. (Skip the material on Multiple-Product |

7. Though numbers given in the cost data can not be contested, I would definitely contest the way total cost has been computed. The item 345 department operates within a large manufacturing facility that churns out number of other products too. Hence judging the profitability of item 345 on the basis of total cost is not practical.

The true variable costs to Beauregard Textiles include the Direct Labor, Material, Material Spoilage, and Direct Department Expense. By excluding those expenses not related to the production of T-30, we can calculate the contribution margin for Beauregard using unit sales price and unit variable cost. Contribution margin is a measurement of the profitability of a product and is an excellent management tool to help determine whether to keep or drop certain aspects of the business. A positive contribution margin means that the company should produce the product, a negative contribution margin means the company is likely to suffer from every unit it produces.

Reference Case from "Project Management, A Systems approach to planning, scheduling and controlling" by Harold Kerzner, PH.D.

Having eliminated completely the option for producing 15,000 shirts, the analysis now focuses on the remaining three options that were available to us at the beginning. With the option of producing 10,000 shirts, the probability of making at least a profit of $6791 is 6%. Similarly, there is also a 6% probability of making a loss of $3458. On the other end of the spectrum, there is a

Based on the real world functioning of businesses, every organization that deals with the process of manufacturing of certain products operates in accordance with the main principle of maximizing its profits. During the performance of daily activities, many business managers face a series of questions related to planning, control and decision making. In order to give answers to all these questions, an additional analysis needs to be considered. It is very important for managers to plan carefully how they are going to generate sufficient money to pay down costs and, in this way to result with a profit. As managers are interested in having the adequate information about the influence that certain actions might have on the profitability of the business, "Cost Volume and Profit" analysis plays a significant role by being a potential tool in facilitating the process of making the right decisions regarding planning and control in order to add value to the company. (Trifan and Anton, 2011). To further illustrate the essential impact that CVP analysis has on management authorities in making better decisions, I will refer to and analyze the case of the Hampshire Company which follows as below.

The data can easily loss because they only use a logbook to record their inventory data. With the system, it will help more on the security of the data. Inventory loss hard to detect because admin need to review one by one page in the logbook, but with the system developed, it may help the admin to detect the inventory in and out from the

Variable Cost per Unit = ( $59,000 − $38,000 ) ÷ ( 3,000 − 1,250 ) = $12 per unit

The cost is kept low with labor and the production. This helps competing in the export trading world. “I am telling, in textile nobody can beat Bangladesh in price and quality”